The CFO or many financial controllers in today’s economy have a difficult role. Against a backdrop of spending squeezes, technical innovation and massive changes in organizational cultures and employee expectations, it is becoming a difficult decision to strike the perfect balance between people and investment and create optimal L&D budget.
In recent years the role of the CFO has changed dramatically. With the transition from solely reporting on the financial situation of the organization, they have been tasked with performance acceleration, driving analysis and providing the perspective and insights needed to link corporate strategy to execution.
22% of L&D budgets are spent on technology
With high demand on CFO’s to have a deep understanding of how organisations invest their resources to achieve business goals and improve organizational capabilities. It is fair to say that human capital represents any organisations biggest investment, more often than not finding themselves having to not only quantify what’s being spent on training, development and talent management but also assess how learning and development (L&D) initiatives translate into monetary value for the enterprise.
L&D budget is getting bigger
The future workplace – HR and Finance working together
Drawing on the strong financial modelling and analytical skills of the CFO for talent management and acquisition has finally become a primary focus. CFOs can now use these skills to help the organisation drive a more effective HR strategy, finally, the human capital in the business can rely on the synergy between financial functions and the learning and development strategy of the business.
In a recent report, 80 per cent of finance and HR professionals surveyed noted that the synergy between the functions has improved dramatically over recent years. The report goes on to suggest that the correct levels of engagement from the CFO in HR matters lead to increased corporate and HR performance, higher growth and improvements in employee engagement and productivity.
A large majority of senior financial functions view human capital as a key-value driver and central factor in their company’s ability to achieve outcomes that drive shareholder value. Recent figures show that in the UK, businesses currently invest over £40 billion a year on formal training, and that’s without taking into account the additional time and resources UK firms will commit to addressing the skills challenges that lay ahead, such as Brexit. As you are reading this I ask you to consider your L&D strategy from the perspective of three people: 1) Your CFO 2) Your HR / L&D Manager 3) Your Employee and consider if your decision to not invest will affect any of these three people. This is a great exercise to write this down and evaluate not only the financial implications but the overall effects this will have on company culture, company performance and finally your company values that you try to uphold which I am sure sets out to contribute in some manner to professional development.
How to manage your L&D budget effectively?
Informed decisions on L&D budget priorities and allocation for maximum L&D ROI are crucial, but it is a two-way street the CFO must invest time in understanding the benefits of L&D.
68% of organizations cite ‘capability gaps’ as one of their top five challenges in 2020
Businesses are moving from traditional, functional structures to focus more on interconnected, flexible teams built around specific projects.
Millennials are taking on more responsibility in the workplace and organizations need to address their expectations. This includes providing the accelerated development opportunities that more than two-thirds of Millennials say an employer will need to have in place in order for them to stay – all the while ensuring that funds directed to them are well placed.
Smart CFO’s are using financial analysis within human capital functions
More than two-thirds of CFOs now take an active role in recruitment and talent management.
For example, some finance departments are now closely monitoring the acquisition of key hires, their performance after three months and the return on investment each hire has contributed to the business. Finance is also working closely with HR to better understand where cost can be saved through reducing employee churn, let us remind ourselves that you must train to retain a hashtag I have been pushing for a number of years #TrainRetain. Often, promoting talent from within is a good way to increase employee retention and can often be more beneficial to the company than hiring someone new. This is particularly true for strategic, high-level jobs.
By hiring from within, employee engagement is improved, which leads to greater workforce stability and productivity – and overcomes talent pipeline challenges. Plus, a step-up in retention rates generates expense reductions in other areas – like the recruitment and induction cost associated with buying in talent and skills.
Employee turnover costs are higher than you even realize
Quantification – a job for the CFO
According to the Chartered Institute of Personnel and Development, poor quality people management costs businesses 184 billion a year in workforce disengagement, performance and productivity.
Calculating the true cost of talent management is not as straightforward as simply monitoring L&D spend against budget.
Calculating the true cost of talent management is not as straightforward as simply monitoring L&D spend against budget.
CFOs must be aware that a company’s largest expense is often its people. Therefore, the performance of the workforce is critical for operations and results. Now, more than ever, understanding and maximizing training ROI is a focus for both the CFO / HR & L&D departments.
They must take into consideration the hidden expenditure related to training. The cost of learning expenditure per-head can at least double –if not quadruple – once all associated indirect costs are factored in.
These indirect, variable costs include loss of productivity when employees undertake training and wasted training investments – for example, when employees fail to attend a scheduled training event on the day due to illness or workplace demands, HCM Deck resolve these issues by automating the process and providing safety measures to ensure “bums on seats” with follow up tests and surveys to ensure the investment was worthwhile. While automating workflows in HR you can help to control costs easily but without an HCM platform, you are furthermore running the risk of encountering issues where clunky intranets, unreliable and time-consuming excel sheet methods which exacerbate the rising costs & investment in your L&D strategy will have a negative impact on your investment.
Let’s talk about your company’s challenges and how we can help you to deal with them
The key to effective development via human capital platforms is for finance to work closely with training partners and HR to develop appropriate metrics to monitor and measure the efficacy of learning and development programmes. Easily accessible analytics within the HCM Deck go beyond merely tracking costs, the CFO can understand when to further invest or withdraw budget, helping to capitalise on this wealth of knowledge to make the most beneficial decisions for the company and the workforce.
This article was written by Edward Smith who has worked for over a decade of senior management, change and process optimization experience having worked with the world’s leading organisations to develop and implement strategic L&D and HR solutions. Edward is responsible for leading the entire HCM Deck global operations.
